Studies in Islamic Finance, Accounting and Governance series
Edited by M. Fahim Khan and Mario Porzio
Chapter 3: Islamic Finance: Personal and Enterprise Banking
Frank E. Vogel INTRODUCTION In this chapter I offer an introduction to the financial transactions employed in Islamic banking and finance. Also, particularly in the conclusion, I offer some observations about the Islamic banking and finance industry as a whole as viewed from the perspective of contemporary Islamic law. I offer an introduction to Islamically-denominated transactions that explains them in terms of the Islamic legal basis for them. I believe that if one learns about the relatively few though somewhat obscure Islamic legal principles that play the dominant role in framing Islamic finance operations, then one gains a map that helps one navigate much more easily through the maze of discussions of all these transactions. Islamic banking and finance applies a number of rules of what I shall call the ‘classical’ law or jurisprudence of Islam, known as fiqh. This is the law of the four Sunni ‘schools of law’ (Hanafi, Shafi’i, Maliki and Hanbali) as this law was conveyed in the authoritative manuals of these schools stemming from about the thirteenth century ce.1 This classical law, though still largely framed by these authoritative manuals, has continued to be refined on its own terms ever since, continuing even down to today. Its principles do allow for its innovation, revision and adjustment. Note that I shall shorten the term ‘Islamic banking and finance’ to the term ‘Islamic finance’, but still meaning to include all forms of bank in the term ‘finance’. The chapter proceeds as follows. I start with a review...
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